Tan gets back PAL for $1.3 B

MANILA, Philippines - The group of taipan Lucio Tan yesterday officially took back full control of national flag carrier Philippine Airlines Inc. (PAL) after paying as much as $1.3 billion to diversified conglomerate San Miguel Corp. (SMC).

The Tan Group celebrated the successful buyback by holding a party at the headquarters of Philippine National Bank (PNB) on Macapagal Boulevard in Pasay City.

In his message, Tan said he was happy to take back full control of the national flag carrier, which he described as “special” to him.

“PAL is more than an airline company for me. It goes beyond investing – it is like family. PAL is never far from my thoughts,” the 80-year-old taipan said.

The Tan Group was determined to take back full control of PAL – at whatever cost.

“Whatever life’s problems, this is a place I can always return to and feel safe, secure and loved. Indeed, this is the reason why I decided to regain full ownership of PAL – because I love PAL,” Tan added.

A source privy to the negotiations yesterday confirmed that the payment amounting to as much as $1.3 billion was delivered to SMC for its 49
percent stake that it had acquired in April 2012.

This brought to a close several months of negotiations between the two major shareholders of Asia’s oldest airline.

The payment was also made exactly one week after both groups signed an agreement signifying SMC’s intent to sell and the Tan Group’s intent to buy the PAL shares.

The source pointed out that the amount represents the $500-million investment made by SMC to acquire a 49 percent stake in PAL two years ago, as well as over $800 million in advances made to the national flag carrier for its operations as well as massive fleet renewal program.

The source said the Philippine unit of Swiss bank UBS AG handled the transaction.

With the completion of the buyback, the Tan Group could take over management control of the national flag carrier. Tan serves as chairman of PAL while SMC president Ramon Ang is president and chief operating officer.

Former PAL president Jaime Bautista, who served as chief negotiator for the Tan Group during the talks, has been appointed general manager of the airline.

“The first step is to go back and review where we stand and plot a new direction,” Bautista said.

The source added that Ang is expected to remain PAL president and COO at least for another month or during a transition period.

In April 2012, SMC’s wholly owned subsidiary San Miguel Equity Investments Inc. (SMEII) acquired a 49-percent equity interest in Trustmark Holdings Corp. for $500 million. Trustmark owns 97.71 percent of PAL Holdings, which in turn owns 84.67 percent of PAL through PR Holdings Inc.

With SMC on board, PAL embarked on a massive fleet renewal program involving the acquisition of 100 brand new aircraft.

PAL entered into its first purchase agreement with Airbus for a firm order of 44 A320 aircraft with options for 20 A321 NEO aircraft for delivery in fiscal years 2014 to 2020.

It also signed a second purchase agreement for a firm order of 10 A330-300 and options for another 10 aircraft for delivery in fiscal years 2014 to 2016.

However, PAL and Airbus agreed to a contract amendment last March wherein the number of orders of A330-300 aircraft would be reduced to 15 instead of 20.

It also agreed to acquire eight A321 NEO. The airline has until 2017 to exercise its right to purchase four A321 NEO aircraft.

As of end-June, PAL has received a total of 17 aircraft from Airbus, including 10 A330 and seven A321. The fleet of the PAL Group, including PAL Express, stood at 85 as of end-June.

With the Tan Group back at the helm, it is not clear whether PAL would pursue the ambitious fleet renewal program or put the aircraft orders on review.

However, the Tan Group is looking at taking in Abu Dhabi-based Etihad Airways as partner for a 40-percent stake in the national flag carrier.

Asia’s oldest airline is set to mount flights to New York via Vancouver in March next year instead of the original schedule of October as the US Federal Aviation Administration upgraded the aviation security rating of the Philippines back to Category 1 from Category 2 last April.

It is also looking at flying to other major cities in the US including Florida, San Diego and Chicago, as well as other cities in Europe such as Paris, Rome and Amsterdam after mounting direct flights to London last November after the European Union lifted the ban imposed on Philippine carriers.

PAL booked a net income of P1.49 billion in the second quarter of the year from a net loss of P1.08 billion in the same quarter last year.